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The labor supply of baby boomers and low flation

Author

Listed:
  • Benoît Mojon

    (Banque de France & Ecole Polytechnique)

  • Xavier Ragot

    (OFCE & Sciences Po Paris CNRS)

Abstract

Why is wage inflation so weak in spite of the recent sharp reduction in unemployment? We show that this may be due to an ongoing major positive labor supply shock. Indeed, the participation rate of workers aged between 55 and 64 has increased steadily over the last decade, from a third to above a half on average across OECD countries. This is most likely the consequence of aging and the reform of pensions. We show that the participation rate of workers aged 55 to 64 contributes to explain why wage inflation has remained weak over the last five years. For instance, it accounts for as much as -1% of wage inflation per annum in Germany since 2013. Our second result is that Phillips curves are alive and well. Wage inflation remains highly responsive to domestic unemployment rates, including after the Great Recession.

Suggested Citation

  • Benoît Mojon & Xavier Ragot, 2018. "The labor supply of baby boomers and low flation," Documents de Travail de l'OFCE 2018-09, Observatoire Francais des Conjonctures Economiques (OFCE).
    • Handle: RePEc:fce:doctra:1809
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    File URL: http://www.ofce.sciences-po.fr/pdf/dtravail/WP201809.pdf
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    References listed on IDEAS

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    6. Johannes F. Schmieder & Till von Wachter & Stefan Bender, 2012. "The Effects of Extended Unemployment Insurance Over the Business Cycle: Evidence from Regression Discontinuity Estimates Over 20 Years," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 127(2), pages 701-752.
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    Cited by:

    1. Pierre Jaillet & Benoît Mojon, 2018. "Les politiques d’objectifs des banques centrales en perspective," Revue française d'économie, Presses de Sciences-Po, vol. 0(3), pages 21-61.
    2. repec:spo:wpmain:info:hdl:2441/5vh68vsbm9akb9r0rkcdi4tmi is not listed on IDEAS
    3. repec:spo:wpmain:info:hdl:2441/8m9642tnm9kuaqr07m32s02jq is not listed on IDEAS
    4. Christophe Blot & Jérôme Creel & Xavier Ragot, 2019. "The Euro at 20: a critical assessment," Working Papers hal-03403622, HAL.
    5. Christophe Blot & Jérôme Creel & Xavier Ragot, 2019. "The Euro at 20: a critical assessment," Post-Print hal-03403622, HAL.
    6. Christophe Blot & Jérôme Creel & Xavier Ragot, 2019. "The Euro at 20: a critical assessment," Post-Print hal-03403622, HAL.
    7. repec:hal:spmain:info:hdl:2441/8m9642tnm9kuaqr07m32s02jq is not listed on IDEAS
    8. repec:hal:spmain:info:hdl:2441/5vh68vsbm9akb9r0rkcdi4tmi is not listed on IDEAS
    9. Christophe Blot & Jérôme Creel & Paul Hubert, 2018. "Why does the revovery show so little inflation," Post-Print hal-03471719, HAL.

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    More about this item

    Keywords

    Monetary policy; wages; compensation; Labor costs;
    All these keywords.

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs

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